California's illegal pot business is booming

From the street, it looks like a goat farm. From above, Riverside County, California sheriff’s deputies saw something else. Four massive white tents, known as hoop houses, containing $1.5 million in illegal marijuana plants.

"The illegal industry is competing with the legal industry and essentially putting them out of business," says Sgt. James Roy, head of the Riverside County Sheriff's Department's 12-person marijuana eradication team.

"This place is no different than thousands of others we hit this year confiscating about a half-million plants in Riverside County alone," Roy said.

California was the first state to legalize medical marijuana in 1996, followed by recreational pot in 2016. Ever since, it's been a disaster for the legal pot industry and law enforcement, which continues to bust illegal growers and dispensaries despite legalization.

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"The price of everything in Los Angeles is going up except pot, it's everywhere" says Detective Mike Boylls, with the Los Angeles Police Department’s gang and narcotics division. 

"The state legalized pot and was hoping to make it a legitimate market. But the problem is these illegal shops are coming in and they're undercutting all the legal shops. They're selling product for almost half the price. So our job as law enforcement has actually gotten harder," said Boylls.

The California experiment is important because the rest of America is at a crossroads over pot. In November, two states – Missouri and Maryland – legalized the adult use of marijuana for recreational purposes, bringing the total to 21. The initiative failed in three states – North and South Dakota and Arkansas – as more data shows the higher THC levels in commercial production concerns public safety experts. The percentage of crash deaths involving cannabis more than doubled from 9% in 2000 to 21.5% in 2018, and the percentage of deaths involving both cannabis and alcohol more than doubled, according to a study published last year in the American Journal of Public Health.

"We were told if we legalize it, we'll get rid of the drug dealers, we’ll greatly reduce the illegal market. People will buy it on the up and up and there will not be a market underground anymore," says Kevin Sabet with the Foundation for Drug Policy Solutions.

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"But the exact opposite has happened. The illegal market has blown up since California legalized marijuana because the demand has shot up so high due to great marketing. We know marijuana's a lot worse than people think it is. But, you know, the prevailing notion is that it's no big deal," Sabet said.

California's problem begins with economics. Seeing a cash cow, lawmakers, including Gov. Gavin Newsom, supported propositions legalizing the drug, despite a federal ban. By requiring licenses to grow and transport pot, permits to sell it retail, and taxes to buy it, the state effectively imposed a 70% tax on legally purchased marijuana. 

While supporters say the regulations make it safe and certified pesticide and chemical free, the high price pushed sellers and consumers back into the illicit black market. California taxed $5.6 billion in pot sales last year, but police estimate illegal sales are twice that – with 10 illegal farms for every one that has a state permit.

"It's definitely profitable for the illegal market," says Roy. "They're selling greenhouse marijuana by the pound of anywhere from $500 to $2,000 here on the West Coast. But if they take that same exact product and ship that back east, it's going for two and three times that amount."

Matthew Schweich with the nonprofit cannabis reform organization Marijuana Policy Project, says California is to blame for killing the golden goose.

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"We spent a century making cannabis illegal and driving people into an illicit market. Then it is legalized, but the tax rates are too high. It's just a simple cost analysis," said Schweich. "People can purchase cannabis for cheaper than going to a regulated licensed business because the tax rate is too high. So when you have a state that allows cannabis possession and home cultivation, versus a long list of states that don't, it follows that people may take advantage of that policy, grow more than they should and bring it to states where it's illegal."

In the last week's bust, Roy's team destroyed 3,000 plants and a nursery. Dozens of rows of plants up to six feet tall stretch about 30 yards in each greenhouse. A row of light bulbs along the ceiling allows farmers to get two additional harvests each year, maximizing profitability. Inside an adjoining house, deputies found two growers hiding in a closet. A third man ran into the desert but was tracked down by a helicopter. 

"Along with these growers, these illegal growers, comes a fair amount of violence and a lot of weaponry," says Roy. "We serve warrants on operations like this every day. And in 80% of the locations, we are finding weapons, high-powered weapons, assault rifles, things like that."

In 2020, Riverside connected 14 homicides to illegal marijuana operations, including seven shot at a large-scale processing center. Nothing was taken. The victims were from Laos. Police say California's illegal grow operations are typically financed and run either by Asian organized crime or Mexican cartels, who routinely try to put each other out of business. Distribution is less centralized, but U.S. street gangs often control street level sales to illegal dispensaries. 

"There's such a large scale of illegal cannabis businesses that come in here we have to shut these places down," says LAPD's Boylls.

The problem is, when voters decriminalized marijuana, they robbed police of the tools used to shut down operations. Felonies and misdemeanors became misdemeanors and infractions. Suspects ignore warrants and prosecutors don't take cases. Because there are no penalties, no one goes to jail and dispensaries consider fines the cost of doing business. The shop LAPD raided last week had been closed by police seven times. This year alone LAPD busted more than 300 illegal dispensaries.

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"This will most likely open back up in a day or two. And we'll have to address this again," said Boylls.

"So my advice to other states is – don't put the cart before the horse. Don't decriminalize the drug before you have your processes in place, and know how you're going to enforce the regulations used to control the illegal business, otherwise you'll be playing catch up," he continued.